Dear Reader,
As we leave 2024, I want to talk about something Elon Musk said last week:
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“Either there is a massive change or America goes bankrupt.”
He’s really talking about the fact that our debt and our spending have gotten to unsustainable levels. Just incredible levels.
This is already costing Americans money.
Here’s how:
The Fed lowered rates and from the time they started lowering rates, the 10-year long bond has gone up 100 basis points…
Meaning, longer yields aren’t tied to the Fed right now.
And it’s really punctuated by a little report not widely picked up, that investors have pulled $5.3 billion out of BlackRock’s iShares 20-year Treasury Bond ETF this month, according to FactSet Research.
If that number holds, this would be the largest monthly outflow in the fund’s 22-year history.
We have this idea that nobody wants to buy American bonds, long debt.
So what that’s doing is forcing the Treasury to issue really short-term notes that pay high rates. And they have to keep reissuing them. Because people like me are saying…
“Yeah, I’ll buy one-year debt. I’ll lend you money for a year or two. But I’m not lending you money for even FIVE years, and certainly not for 10, 20 or 30 years…
“You guys are spending too much.”
So they’re forced to pay people like me and other investors higher rates.
Which means they’re going to have to refinance this debt at some point soon, in the next year or two.
So, we are in a unique point in American history.
It’s like we’re driving 80 miles an hour down a dead-end street.
Which is why Elon Musk said what he did, and why he’s right.
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And again, I’m all for a little hyperbole when it comes to making an important real point.
I am not for hyperbole when you’re just saying it to hear yourself talk.
But if you’re trying to say something important, like America’s in trouble, I’m all for it.
And I agree 100% with what Musk said.
The other thing that really jibes with this is a Bloomberg article came out just a few days ago – “Anything But Bonds.”
What we’re starting to see is what they refer to as a “buyer’s strike” in the bond market…
People like me saying, “I’m not buying anything long rated.”
Now, I’m a small timer compared to the big institutions like PIMCO, BlackRock, Germany, China, Japan…
All these countries, all these institutions, all these professional investors from around the world – nobody wants our long bonds.
That’s like being someone who needs money and can’t go to the bank – so you have to start borrowing money on the street from a loan shark.
We are going to really get into trouble the first time we have a recession.
I’ve been warning about this for God knows how long…
But really began banging the bell since July.
This is already affecting you…
Mortgage rates… credit card rates… they haven’t gone down.
These things are tied to long bonds.
And these things are already starting to cost the American economy.
Don’t think that you have to wait for the world to come to an end, a massive debt crisis, for this to start filtering through.
It is already happening.
So my hope for 2025 is that the incoming administration gets this under control.
I don’t want to finish 2024 on a sour note, but I will finish on a sober note. Because this is important stuff.
Have a wonderful New Year’s Eve.
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